SENATE BILL REPORT

SB 5540

BYSenators Lee, Smitherman and Rasmussen

Establishing a defense on lien foreclosure proceedings on residences.

Senate Committee on Economic Development & Labor

Senate Hearing Date(s):February 14, 1989

Senate Staff:David Cheal (786-7576)

AS OF FEBRUARY 14, 1989

BACKGROUND:

When a general contractor fails to make proper payment to its employees, to a subcontractor that it hires, or to a supplier of equipment or material for the project, that worker, subcontractor or supplier is entitled to file a lien claim against the property of the owner.

The lien claimant can collect the amount due from the owner, and if necessary, force the sale of the property in order to collect.

If the amounts cannot be recovered from the general contractor, the owner will effectively pay for the project or a portion of the project twice, or perhaps even lose the property.

In some states, the lien claim can only be made against any money the owner has not yet paid to the general contractor under the contract.  In those states, the subcontractor or supplier can only look to the general contractor for payment, and may never collect.  The construction lien laws of approximately half the states are of this type, known as the "New York system."  The other half, including Washington, have what is known as the "Pennsylvania system."

SUMMARY:

In any action to foreclose a lien claim against a single family residence, the owner has a defense to the extent that the general contractor was paid prior to the time the lien claim was filed and served.  For example, if the owner paid $90,000 on the original contract for $100,000, prior to being served with the lien claim, a lien claimant can collect a maximum of $10,000.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested